If you jointly own a house and you have paid for works / improvements to the property, or paid more towards the mortgage, you may be entitled to compensation for this.
The principle of equitable accounting applies between co-owners of property and is a mechanism for giving an owner credit for things that they have done that increase the value of the property. It operates so that if party A does something that increases the value of the property they co-own, they get the whole benefit of that so that party B does not obtain a ‘windfall’. This equitable doctrine is “aimed at achieving justice between co-owners”.
Where couples (who are not married) co-own a property, claims for equitable accounting often arise following the parties’ separation when one cohabitee vacates the home and stops contributing towards the mortgage repayments, leaving the other cohabitee to meet repayments in full.
Claims based on equitable accounting can also arise during cohabitation where for example, improvements or renovations have been undertaken and funded by one party which increase the value of the home.
Mortgage payments
The most common type of financial contribution relied on to establish an equitable accounting claim are capital (the amount you owe to the lender to repay the mortgage in full), rather than interest, mortgage repayments.
Repaying £100 of the capital element in each mortgage instalment increases the value of the equity by £100 which benefits both co-owners. Where a cohabitee reduces the mortgage, the court gives credit for the part of the payment that was made on behalf of the other co-owner to the payer.
For an example of how this operates in practice, in the case of In Re Pavlou [1993], a husband and wife owned a property in equal shares. The wife spent considerable sums on the property, such as repairs and paying the mortgage instalments. The wife’s expenditure was considered when determining how the net proceeds of sale would be distributed to the husband and wife. As they held the ‘shares’ in the property equally, the wife was entitled to credit for 50% of the mortgage repayments made on behalf of the husband.
If beneficial interests (‘shares’) in a property are held other than in equal shares, for example, party A owns 60% and party B owns 40% and party A pays the entirety of the capital mortgage repayments, party A will receive credit for 40% of the capital element of the payments because that is the sum that has been paid on behalf of party B.
The courts do not tend to provide credit for the interest element of a mortgage, however, this is always at the discretion of the court and dependent on the circumstances of each matter.
Renovations / improvements to a property
The case of Re Pavlou sets a precedent that if a co-owner pays for renovations or improvements which increase the value of the property, the payer will receive credit for the lesser of the following:
(i) The cost of the works; or
(ii) The increase in value added to the property.
For example, if the costs of improving the condition of a property cost £50,000 but have only increased the value of the property by £30,000 – the payer will only receive compensation for the increase in the value of the property.
Keep in mind that over time expenditure on property may result in no increase in value or a much smaller increase in value than the amount spent.
Claims for equitable accounting based on renovations and improvements to the home also face evidential challenges if works were undertaken several years before the claim is pursued. The claimant needs to provide evidence of the cost of the work, together with evidence of the increase in value attributable to the work undertaken. Providing historical evidence of this nature can be difficult and will depend on the parties’ record keeping and the nature of the work undertaken.
For example, renovations such as replacing a bathroom or a kitchen may add no or little value over time and will be difficult to evidence if tradespeople have been paid in cash. However, it may be easier to demonstrate the costs incurred and the increase in value attributable to extending a property or a loft conversion. A report from a surveyor can provide helpful evidence about the increase in value attributable to the work.
If you co-own a property and have made payments towards a property that exceed the contributions the co-owner(s) has contributed, please contact a member of our dispute resolution team on 0208 049 5888 for a no obligation discussion about your options.
If you want to know more or want to speak to a member of our team, please get in touch below or call us on 01702 338338.
